Nov 16, 2013

Indian capital
market regulator Sebi has issued detailed guidelines, including on eligibility
criteria, for listing of start-ups and small and medium enterprises (SMEs) on stock
exchanges without an initial public offer (IPO).

The
guidelines follow notification of new norms by Sebi earlier this month for permitting
listing of start-ups and SMEs on Institutional
Trading Platform (ITP) of SME Exchanges.

Through
this new route, the SMEs and start-up companies would not need to make a public
offer of securities for getting listed in the stock market.

The
move would help SMEs and start-ups raise capital from the securities market
during their early stages of growth, as lack of exit opportunities in case of
unlisted companies come as a major hindrance for small companies to get
capital.

REQUIREMENT:

As
per the new guidelines issued in October 2013, a company would be eligible for
such listing if it has not completed a period
of more than 10 years after incorporation and its revenues have not exceeded Rs
100 crore in any of the previous financial years, among others.

In
addition, the company should have got an
investment of at least Rs 50 lakh by an alternative investment fund, or a
venture capital fund, or by a merchant banker, or an angel investor, or a
specialised international multilateral agency, or a public financial
institution, among other such investors.

As
per rules regarding capital raising by SMEs, the norms said a company may raise
funds through private placement or through a rights issue.

In
case of a rights issue, there shall be no option for renunciation of rights and
the company seeking to get listed on ITP shall agree to make necessary
amendments to its articles of association to this effect.

The
market regulator has asked the promoters of SMEs not to hold less than 20 per
cent of the post listing capital of the company and the same shall be locked-in
for a period of three years from date of listing.

According
to the norms, an SME would be required to exit the ITP within 18 months if it
has been listed on the platform for a period of 10 years or it has paid up capital
of more than Rs 25 crore or company has revenue of more than Rs 300 crore in
the last audited financial statement, among others.

(WE BELIEVE START UP WORD SHOULD NOT BE USED FOR SUCH COMPANIES WHICH ARE 10 YEARS OLD AND HAS 25 CRORE RS. CAPITAL AND REVENUE OF RS.300 CRORE. THIS IS NOT LOGICAL PROVISION OR USE OF WORDS BY SEBI)

The
company can also take a voluntary exit if it has the approval from its majority
shareholders.

Moreover,
a company would be removed from the platform if it fails to file periodic
filings with the recognised stock exchange for more than one year and does not
not comply with corporate governance norms.

The
regulator has asked the stock exchanges to "execute a listing agreement
with companies seeking listing on ITP in line with the Model listing
agreement" and implement the amendments.

SEBI
Chairman UK Sinha, addressing a capital market summit organized by FICCI said
that there are 1100 companies which are
not compliance with the requirement of clause 35 of shareholding pattern, which
means the direction with regard to shareholding pattern has not complied with.
Also, there are 900 companies which are not compliant with the corporate
governance norms as per clause 49.

He
signaled that the Securities and Exchange Board of India (Sebi) plans detailed
guidelines on corporate disclosures, aiming to improve the quality of giving
out information by companies. He indicated that to improve the quality of
corporate disclosure, SEBI will, probably announce guidelines on Monday or next
week.
He also said that they will have a relook at the delisting guidelines. About
delisting, Sebi also had earlier indicated that SEBI will now become a party to
the delisting agreement between the company and the exchange. It is notable
that in a recent case in which the company’s advocated argued that SEBI has no
say in matter of listing agreement as it is not a party to the agreement.
The Chairman also said that Sebi may look at the rules for preferential
allotment of shares by companies.Clause 35 of the Listing Agreement requires listed entities to submit to the stock exchanges on a quarterly basis, a statement of its shareholding pattern providing details of shares held by promoter/promoter group and public and details of shares held against Depository Receipts.